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Europe fails to deliver on policy

EUROPE: The European Commission has ignored its own evidence of the economic benefits a 30% renewable-energy target would bring and has turned its back on renewables, says EWEA's Jacopo Moccia. Yet the EU's wind industry is key to secure energy supply and economic recovery.

Disappointment  José Manuel Barroso (centre) announces the EC’s proposals with Günther Oettinger (left) and Connie Hedegaard
Disappointment José Manuel Barroso (centre) announces the EC’s proposals with Günther Oettinger (left) and Connie Hedegaard

After considerable squabbling, back-tracking and horse-trading, on 22 January European Commissioners finally proposed a climate and energy package to shape the EU's energy industry to 2030.

Commission president Jose Manuel Barroso triumphantly announced a momentous decision: a greenhouse-gas reduction target of 40% of 1990 levels by 2030 and a 27% renewable-energy target, binding on the EU, but not on individual member states. Connie Hedegaard, the climate action commissioner, and Gunther Oettinger, energy commissioner, stood alongside Barroso as he delivered the proposal.

Ignoring a European Parliament vote just days earlier calling for strong policies and a 30% renewables target, Barroso highlighted how "ambitious" the EU is on renewables. He rejoiced that his plan is "far-sighted", will trigger an "energy revolution", bring down energy bills and create prosperity.

Nothing could be further from the truth. With this proposal, the European Commission (EC) has turned its back on renewables and, in doing so, has turned its back on jobs, economic growth and energy security.

Throughout 2013, the issue of electricity affordability was a hot topic in Brussels, as it was in capital cities across the EU — and rightly so. It is, however, a complicated and multi-faceted issue: on the one hand power producers are struggling as the cost of electricity on the wholesale markets reaches historic lows, on the other hand, electricity bills are soaring for consumers (see box, below). In the meantime, under-priced shale gas in the US brought down power prices, and the spectre of Europe's perceived competitive disadvantage haunted the energy debate.

Blame

As in all complex debates, the tactic of choice was to select scapegoats. Some power producers faced with stranded gas assets pointed their fingers at renewables — specifically wind and solar — arguing that they are dragging down the price of electricity due to their lower marginal costs. The sharp decrease in power demand due to the economic crisis was, interestingly, not an important part of this reasoning.

Manufacturing and chemical industry associations, meanwhile, argued that electricity bill increases was due to renewables taxes. Caught between its renewable energy policies and growing pressure from some power producers and energy-intensive industries, the commission launched a series of studies to feed into an impact assessment for the 2030 energy and climate package. No decisions would be taken without evidence and real data, many commissioners said.

Import excesses

The evidence, in the form of an impact assessment, a report on energy costs and prices, and a report on energy economic development in Europe was conclusive. Europe is victim of its fossil-fuel imports, which are the main drivers of energy bills — EUR 421 billion in 2012 alone, more than 3% of the EU's GDP.

The impact assessment confirmed that the decrease in power demand due to the financial crisis has contributed to the lower wholesale prices and, where power markets take renewables into account,such as in Spain or Ireland, the merit order effect of low-cost power production from wind offsets the extra cost of the support mechanism. Where this does not happen it can be due to bad policy or market design, like in Germany.

The assessment also found that the cost of support mechanisms for renewable-energy sources — more than EUR 30 billion in 2010 across the EU, of which EUR 2.2 billion was for wind energy — is offset entirely by the reduced fossil-fuel import bills thanks to renewable energy availability.

Setting a renewable energy target of just 30% alongside a greenhouse gas reduction target in 2030 would create 1.25 million extra jobs in the EU — 570,000 more than setting a single greenhouse-gas target — at virtually no extra cost to the energy system.

Europe is a global industrial leader in renewables, particularly in wind, with a positive export balance in 2012 of EUR 2.5 billion in wind-turbine components alone. European companies are responsible for 55% of global wind-energy patent applications.

In short, the commission evidence is compelling, making the decisions taken by the commission all the more surprising and counterproductive. In the words of Thomas Becker, CEO of European Wind Energy Association (EWEA): "The previously far-sighted commission is a shadow of its former self."

Wind energy needs ambition and stability

The wind industry has suffered in past years from the regulatory instability created by governments rushing to change, re-change, fix, undo and re-do energy market policies and support schemes. Some changes introduced in key markets have had retroactive aspects, hitting wind farms that have been up and running for years.

EU policy and targets over these tumultuous times have been a reference, and the commission has played a role in trying to keep national renewables policies on track. A strong signal from Brussels that renewables are unequivocally the way forward for Europe's energy supply and broader economic redeployment would go a long way in increasing investors' confidence in the wind industry and allow the many supply-chain companies to plan their future operations. In short, allow the wind industry to get back to business.

In March, the heads of state of the EU's 28 member states will meet to discuss the commission's proposal for a 2030 climate and energy framework. They need to show leadership and agree an ambitious package based on a renewable-energy target exceeding 30% that allows Europe's world-leading wind sector to make the region more prosperous and secure its energy supply.

The industry is meeting at Europe's biggest wind conference a week before the EU meeting, and this will be an opportune moment to send a clear message to governments across the EU.

LOW WHOLESALE PRICES, HIGH BILLS EUROPE'S COMPETITIVE DISADVANTAGE

Cheap wholesale prices

European Commission analysis shows that the decrease in power consumption due to the financial crisis and the increase in "low marginal cost" power production, predominantly wind and solar, have reduced the cost of producing electricity and lowered wholesale prices.

However, the EU's dependence on fossil-fuel imports, especially gas, has increased fuel import bills. Gas is especially problematic as a majority of import contracts are long-term and index-linked to oil prices. The EC concludes that there is a strong correlation between fossil-fuel price rises and electricity bill hikes. While the "energy production" element of electricity bills has declined, taxes and grid costs have increased, leading to an overall increase in bills, the commission notes.

In well-functioning electricity markets, the lower wholesale prices should be reflected in consumer bills, states the EC. However, as many countries regulate consumer-prices and use electricity bills to levy taxes that are not directly related to power production, low energy costs do not pass through to consumer bills. Consumers are, therefore, not fully reaping the benefits of increased wind energy development.

Soaring energy prices

The EC further analysed the increasing energy bills and how that affects the competitiveness of energy-intensive industries.

It concludes that the European industry pays significantly more for its energy compared to its main commercial partners (with the exception of Japan).

This situation is not new; energy has been more expensive in Europe than in other areas of the world for a long time due to Europe's lack of domestic fossil-fuel resources and the increasing energy consumption in other parts of the world. The EU is an energy price taker, not maker. Even with an increase in domestic fossil-fuel production, such as through shale gas exploration, fossil-fuel prices will remain largely dictated by international markets.

Energy efficient

European industry has reacted over the years to the high energy prices by increasing efficiency. EU industry is significantly more energy-efficient than that of the US, China or other emerging economies. Consequently, the EU's balance of trade has, as yet, not been significantly affected by the difference in energy prices compared to the union's commercial partners.

"The EU-US goods balance has shown a persistent surplus for the EU without any clear sign of deterioration. One can tentatively conclude that the widening EU-US energy price gap has so far not visibly affected the EU industry's market performance vis-a-vis their US counterpart," says the European Commission staff working document Energy economic developments in Europe (January 2014).

Jacopo Moccia is head of political affairs at the European Wind Energy Association

Timeline for wind power and the EC


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